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You can generally change the nominated beneficiary on your life insurance policy at any time as long as no claimable event has occurred e.g. a death of the policyholder.
To change the beneficiary on your life insurance policy you'll need to complete a nomination of beneficiary form and complete the form depending whether you would like to:
A life insurance beneficiary is the person/persons nominated to you receive the benefit for the sum-insured in your life insurance policy in the event that you pass away or are diagnosed with a terminal illness with less than 12 months to live.
Beneficiaries are nominated at the time of application with applicants able to allocate the proceeds of their policy to ensure that each beneficiary receives the correct amount of money. In the event that a benefit is paid, this nomination must be upheld by the insurance provider. Beneficiary nominations are legislated under the Insurance Contracts acts of 1984.
Back to topWhile most people will nominate their spouse and children to be their beneficiary, applicants have the ability to nominate anyone to receive their benefit payment. It can be given to a family friend or to ones parents, the only prerequisite is that they are over 18 years of age.
As many people will wish to leave their benefit payment to their children, and in most circumstances their children will not be over 18 years of age, all that has to be done is for the applicant to clearly state in their will that the benefit is to be given to their dependent children. In the event that both the insured and their spouse passes away, this will ensure that the benefit is still given to their children and will remove the risk of a legal battle or confusion ensuing.
Most policies will allow applicants to apply for up to 5 beneficiaries to receive a benefit in the event of their death. Each of these policyholders can receive a shared amount of the benefit or different portions. It is worth noting that the greater the number of beneficiaries there are on the policy, the more difficult the claims process can be.
A binding nomination for a super fund life cover benefit can be made for the policyholders:
When you review your life insurance policy, it is important to consider whether the people you wish your benefit to go to are the ones who will actually receive it. This is not guaranteed, because if you are the sole policyholder and you have not made it crystal clear who your beneficiaries are to be, then the life insurance benefit could be paid to your estate in the event of your death, to be distributed by your executor.
If you have been married more than once or have children from a previous marriage, this could complicate matters and lead to monies being distributed at the executor’s discretion. The benefit could also be used to pay off any debts the estate owes before your beneficiaries see any of it.
Even when the distribution is relatively straightforward, unless you have made legal provisions to ensure your benefit is distributed according to your wishes, the matter may be tied up for some time before being resolved, which could lead to financial hardship for your loved ones.
In the event that a beneficiary passes away and no new beneficiaries have been nominated, the sum insured will be returned to the policyholder. If the policyholder is the same person as that who owns the policy, the benefit will be distributed to the estate as per the beneficiaries will.
If both the beneficiary and policyholder pass away at the same time, the benefit will be distributed as per the policyholders will.
Learn how the life insurance claim process works
Back to topWhen reviewing your life insurance policy, looking at the policy ownership is one way to make your cover more effective. If you are the life insured and the sole policy owner, then as mentioned previously, the benefit paid on your death is likely to go to your estate.
To avoid this, you may wish to consider making the person you want to benefit from the policy the owner of the policy. However, while this will ensure your beneficiary receives the benefit rather than your estate, it could be problematic if the beneficiary was your spouse and you were to become estranged or divorced, as you would then have no control over the policy.
As well as self-ownership, other forms of policy ownership include:
When considering ownership during your policy review, it would be wise to seek professional advice from your insurer, adviser or financial consultant, as the implications of ownership can be complex and far-reaching.
More useful information on policy ownership
Back to topThe other way to ensure that the right people receive the proceeds of your life insurance is to choose a policy that allows you to nominate your beneficiaries.
As the owner of the policy, you can nominate which beneficiaries are to receive what proportion of the benefit (must add up to 100% in total). This method allows you to remain in total control of the policy and also to direct the proceeds to the right beneficiaries.
The only drawback with this is if your policy is held within superannuation, as superannuation law states that the beneficiary can only be a dependant or your estate executor and that person will receive all of your superannuation, including your life insurance.
Back to topSo, how do you make sure the ones the benefit goes to the right person? One way is to have an up-to-date will as part of your estate plan, which clearly identifies your wishes.
Another way is to choose a life insurance policy that contains inbuilt mechanisms to simplify and speed up the payment process. Many modern life insurance policies do this by allowing you to nominate ownership of the policy and also who your beneficiaries are to be.
Back to topThe other way to ensure your beneficiaries receive the proceeds of your life insurance policy fairly and in a timely manner is to have an up-to-date will in place as part of an overall estate plan. A will not only directs the proceeds of your life insurance to the right people, but also ensures the correct distribution of the other assets that make up your estate.
A comprehensive estate plan would also cover circumstances such as power of attorney, where you nominate another person to make decisions on your behalf, should you be unable to do so.
Find out more about the benefits of estate planning
Back to topAs you get older, it is inevitable that your life insurance needs will change, which is another reason why it is important to review your policy on a regular basis. Possible changes to your circumstances and therefore your insurance needs can include:
There are another key events that could trigger the need to update who will receive the benefit of your policy in the event of your death. Such events could include:
The nomination of beneficiaries an extremely important component of taking out life cover. Many unforeseen changes can happen over the life of a policy and reviewing if the lump sum benefit will be given to the right parties is critical.
In addition to the importance of ensuring your policy will pay out a benefit to the correct beneficiaries, it is also critical for policyholders to undertake regular reviews of their policy to ensure they have the right level of protection in place. As circumstances change it is important to adjust the sum-insured accordingly. Key events that could bring on this change include:
Find out more about seniors life insurance
Back to topAnother consideration when reviewing your life insurance policy is whether you are still getting good value for money. Some of the indicators of good life insurance cover include:
Life cover through superannuation is different to standard retail life cover as the benefit payment will paid to the fund trustee who will then distribute it to the beneficiaries as they see fit. This can result in a delay in the benefit being given to the beneficiaries and a risk of the benefit not being paid to the policyholders preferred beneficiary. Risk of this occurring can be reduced with a binding death benefit nomination.
A binding death benefit nomination is a written nomination to the Super fund Trustee that outlines the policyholders dependents and legal representatives that the policyholder wishes to receive the benefit for the sum insured in their policy in the event of their death. A binding death benefit nomination can be made at any time.
This nomination can remain in effect for a period of up to three days from the date that it has first been signed. The Fund Trustee must first receive and accept the nomination before it can be put in place.
Applicants for life cover through superannuation should be aware that their benefit payment can be subject to tax in the event of their death if the beneficiaries are not financially dependents. This could include beneficiaries that are not a spouse, over 18 years of age, not financially dependent on the policyholder. A tax rate as high as 16.5% can apply.
Back to topAn adviser can help you find cover from trusted life insurance brands.
$100,000 life insurance policies can be very affordable. Compare costs and cover here.
Compare $500,000 life insurance policies, costs and cover here.
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